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American Airlines Follows United Airlines to Lower Agency Commission
with Further Cost-Cutting Foreseen Focusing on GDS/ CRS
End-May 2008
Norio Inaba, Director of Sales Japan, American Airlines confirmed
in an interview with Travel Vision that the airline had officially
notified the travel agents in writing on May 13 that its agency
commission be reduced from the current 5% to 3% for tickets issued
within Japan on and after July 1. American Airlines has followed suit
after United Airlines. Apparently, the transition to a lower agency
commission is now spreading from American carriers to Japanese
carriers.
Revealing that the airline meanwhile started to explain the
impending change to the travel agents, Inaba said, "We understand
that our travel agents are ready to manage the transition better this
time compared to the time it was reduced from 7% to 5%.
In 2006, when the agency commission was lowered the first time,
American Airlines made proposals to each of its travel agents
providing sector bonus and net air fares in order to minimize a
negative impact on its travel agents. He is of the opinion that "the
negative impact resulting from the lowered regular agency commission
will be comparatively less than the previous transition time."
However, it must be noted, that some of the travel agents will be
negatively affected by the imminent reduction of the agency
commission. Commenting on the impact the airline may have on them and
the feasible support that may be provided to them, Inaba said,
"Approximately 10% of our total traffic revenue is generated by K
class and L class fares of the PEX fares, and the full normal fares.
By introducing agency incentives, we would like to motivate our
travel agents to help us to sell these higher fares." The airline
intends to launch a sales incentive scheme to those American Airlines
-minded travel agents, Inaba added.
*Future Cost-Cutting Measure to Focus More on GDS/ CRS Than on
Commission
Inaba also mentioned the airline's future cost-saving strategies.
The sales costs basically consist of agency commission, sales
incentive, discount tariff to contracted commercial accounts and GDS/
CRS segment fees.
He pointed out that "In the foreseeable future, the GDS/ CRS
segment fee will be a decisive factor in further reducing the sales
costs." The airline's agency commission will be reduced as from July
1, but, as Inaba said, it seems that the cost-reduction as such will
no longer bring the airline a cost-saving of more than 10%.
On the contrary, the GDS/ CRS cost-saving measures have just
started. "When we compare different GDS/ CRS, the lowest segment fee
varies from US$3.70 to US$7.20 per segment, which is a substantial
difference. A roundtrip itinerary to Dallas, for instance, has 4.5
segments to book. If a transaction fee of US$10 is added, a creation
of 1 PNR will cost the airline roughly 5,000 yen, pointed out Inaba.
The eventual cost-cutting of the GDS/ CSR segment fee will bring
American Airlines a saving of 100 million yen.
In terms of distribution cost-reduction, the airline intends to
introduce a distribution channel the "Direct Connect" also in Japan,
the system of which has been expanding both in America and Europe.
The system allows the airline to distribute its seats directly to
travel agents, thus aiming to substantially reduce distribution
costs, by changing the airline's inventory system to give the direct
access to travel agents. Cost-wise, including initial cost of
programming, it may be quite expensive. American Airlines is,
however, ready to launch the "Direct Connect" anytime if the airline
finds a travel agent to join forces with to develop the system,
concluded Inaba.
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